Liberty Buys Into Belgium Cable

Liberty Media International Inc. acquired a 14% stake in Belgium cable operator Telenet from Callahan Associates Belgium, a subsidiary of Cable Partners Europe — a move some analysts believe could be the first step in acquiring the entire company.

LMI, the international cable arm of Liberty Media Corp., was spun off from the parent company in June. LMI includes a 53% interest in UnitedGlobalCom Inc., a 45% stake in Japanese cable operator Jupiter Telecommunications Co. Ltd., and a 50% interest in Japanese programmer Jupiter Programming Co. Ltd.

Telenet is the largest cable operator in Belgium, with about 2.5 million revenue generating units in the Dutch-speaking Flanders region of the country.

Some analysts believe the most recent deal provides a path to acquiring all of Telenet.

According to a report by JB Hanauer & Co. analyst David Joyce, LMI is paying $23 million for the Telenet stake, but at minimum will be repaid at the carrying value of LMI loans totaling $90 million.

LMI had acquired those loans at a significant discount to face value from two investors in Telenet, Merrill Lynch Private Equity and Motorola Inc., according to Joyce’s report.

Although Telenet has had some financial problems in the past, it appears to have worked through them. According to Joyce’s report, Telenet has 1.59 million video subscribers (representing 94% penetration of homes passed), 417,000 high-speed data subscribers and 258,000 voice telephone customers.

Because of those strong numbers — Telenet also reported $294.40 million in cash flow in 2003 on $665.7 million of revenue and sports a 44.2% cash-flow margin — Joyce believes that LMI will eventually merge Telenet with UGC, the largest cable operator in Europe.

Liberty has long had its eyes on Telenet. Its United Pan-Europe Communications N.V. (since merged with UGC) was beaten out by Callahan for a 54% interest in the cabler in 2001. Since that time, Callahan has gradually reduced its stake in Telenet, selling off portions to a group of Belgian municipal authorities, Belgian electric utility Electrabel and Belgian buyout firm GMVI.

“The ownership structure of Telenet is intricate, but we would expect LMI to work through the issues over time and potentially be able to contribute it to 53%-owned UnitedGlobalCom, since [UGC] has a small presence in Belgium with 136,000 analog video subs and 30,000 high-speed data subs,” Joyce wrote.

UGC also is the largest cable operator in the Netherlands, and given Telenet’s presence in Dutch-speaking Flanders, could provide some programming synergies.